Applying the same risk versus reward thesis as venture capitalists, about one-in-10 small cap investments will pay off.

There's always the risk of being caught out between hype and reality. Simon Letch

Former small cap tech stocks that have gone onto be billion dollar-plus companies include Appen, which listed with a market capitalisation of $47.3 million in 2015 and is now worth $3 billion. Afterpay, which listed in 2016 with a valuation of $165 million, is now worth $8 billion. Xero, which first started trading on the New Zealand Stock Exchange in 2007 with no revenue, raised $NZ15 million in capital. At the time, the sledge of the day was “Xero, the first IPO named after its revenues”, but today the company is valued at $9.6 billion.

So which small cap tech and biotech stocks are investors favouring and turning against in 2019? With three and a half months to go, the fan favourite until Tuesday had looked to be fintech company iSignthis.

Related Quotes

Advertisement

Portraying itself as Australia’s answer to PayPal, iSignthis' share price had increased more than tenfold so far this year - from 15¢ to a high of $1.76 - and earned itself a market cap of $1.85 billion compared to just $161 million at the start of the year. Investors had been treated to a steady flow of news and have been optimistic about the company's potential despite recording a modest amount of revenue to date.

However, the share price has tanked 42 per cent since Tuesday on the back of an Ownership Matters report which raised questions about the company's revenue and governance. Despite this, it's still valued at over $1 billion.

While well and truly still a small cap, $265 million company PainChek is up 624 per cent in the last six months, after a slow start to the year.

The business has developed an app that can automatically detect pain via artificial intelligence and facial recognition software, which can be used by doctors to help idenfity the pain levels of a child who hasn't learned to speak, or an adult who can't verbalise their pain.

Small cap tech stocks Dubber, which makes cloud-based call recording software, and NetLinkz, which has created an improved version of a VPN known as a Virtual Invisible Network, have enjoyed share price gains this year of 300 per cent and 500 per cent price rises respectively.

Advertisement

But with price rises like these, there's always the risk of being caught out between hype and reality. There have been plenty of companies in the past that could have made this list but have fizzed. Take Afterpay competitor, Splitit, which earlier this year hit a high of $2 just six weeks after listing, before falling back down to trade at 56¢.

Not to mention in recent years companies like Big Un, GetSwift, 1-Page and Reffind that have temporarily looked like small cap starlets, but clever story telling can only carry a company so far.